The Hong Kong Monetary Authority kicked off Phase 2 of the e-HKD Pilot Programme on Monday, setting the stage for a year-long exploration of innovative use cases for new forms of digital money, including the Hong Kong dollar and tokenized deposits, that can be potentially used by individuals and businesses.

The e-HKD Pilot Programme is part of Project e-HKD, which the de facto "central bank" of Hong Kong has rebranded as Project e-HKD+ to capture its broader scope.

Having wrapped up the first phase last October, the HKMA found that e-HKD could deliver value in three key areas: programmability, tokenization, and atomic settlement.

Under the second phase, 11 groups of firms from a mix of sectors, including banking, management consulting and securities investment, will dive into application cases centered around settlement of tokenized assets, programmability and offline payments. They will also assess the realworld commercial viability of new forms of digital currency for both individuals and businesses.

The first phase was about the "usability" of e-HKD, while the second phase will focus more on making it "easy to use", such as enhancing the efficiency of payments and digital asset transactions, said Howard Lee Tat-chi, deputy chief executive of the HKMA.

There are no plans for a third phase, and the timeline for when the e-HKD will be officially launched hinges on the outcome of the second phase, Lee added.

In terms of the settlement of tokenized assets, for example, Hang Seng Bank, blockchain platform Aptos Labs and Boston Consulting Group will test the commercial value of settling a tokenized fund using digital money on a public blockchain.

As for the use cases of programmability, Bank of China (Hong Kong) is establishing the e-HKD infrastructure based on a consortium blockchain network and joining hands with Sanfield (Management) Ltd and other partners to create on-chain smart contracts for the effective applications of dedicated fund mechanisms and prepayment scenarios.

Meanwhile, Bank of Communications (Hong Kong) and telecom company China Mobile (Hong Kong) will join hands to test the use of e-HKD stored on a mobile SIM card to enable e-HKD offline payments and transfers.

Similar to the first phase, an e-HKD sandbox will be made available to these participants to accelerate their prototyping, development and testing of the potential use cases.

The findings from the second phase will help the HKMA understand the real-world challenges that may be faced in designing, implementing and operating a digital money ecosystem that comprises both publicly and privately issued digital money, according to the HKMA.

"The HKMA will continue to adopt a use-case driven approach in its exploration of digital money," said Eddie Yue Wai-man, chief executive of the HKMA, adding that it will work closely with industry participants in phase 2 to co-create more innovative use cases.

Driven by common issues such as industry standards, regulatory guidance and financial infrastructure that the HKMA identified during the first phase, it will establish the e-HKD Industry Forum as a discussion platform where industry-led working groups will be set up to provide recommendations on specific topics, initially focusing on programmability.

The first batch of participants of the forum will mainly be firms that have been involved in the e-HKD Pilot Programme.